Passing next stress test is job #1 at Citi

"I'll put my jacket on and walk out the door," Citigroup (C) CEO Michael Corbat has told Chairman Michael O'Neill should the bank flunk the Fed's stress test next year. In a WSJ "inside baseball" account of the failure and Citi's efforts since, Corbat is described as having turned his attention away from moving the business forward for instead a laser focus on proving to bureaucrats at the Fed that Citi's global business model is one that can survive the next crisis.

"Are you targeting our business model? Our strategy," asked Corbat point-blank to Fed officials in a person-to-person meeting shortly after the stress test failure. For Citi to continue to operate all over the world, replied the Fed group, the bank needed to significantly improve its ability to operate and assess risk.

Corbat returned from the meeting with an urgency to simplify operations and overhaul aspects of the bank's risk apparatus, and Citi has since sold its Greek consumer unit and put its Spanish one on the block. "The federal government's overreach is excessive over these big banks, particularly of Citi," says longtime investor William Smith of SAM Advisors, urging Corbat to instead push back against regulators.

Becoming more clear is that a stress test failure next year will mean not just Corbat's job, but also a likely break-up of the bank. "Two extremes, from agitated investors to tough-minded regulators, will unite to break up Citigroup as too big to manage," says Mike Mayo.